FIVE EXCUSES TO DELAY ESTATE PLANNING
Q. Why do I need a will if everything is owned jointly with right of survivorship with my wife?
A. People develop excuses to delay estate planning. The following is a list of common excuses.
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“I don’t need a will because of joint ownership.”
FALSE — If you both die or one of you becomes incapacitated, you have waited too late to prepare your estate plan.
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“My child’s name is on all of my bank accounts.”
HORRIBLE PLANNING — If the child is sued, goes through divorce proceedings, or is involved in an accident, you could lose the account. A general rule is never to own assets jointly with a child.
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“I have to discuss my will or trust with my children before I proceed.”
WHY? It’s your money, and you should plan your estate according to your wishes. Children could be your worst advisors. A properly drawn trust is of great benefit to your children and yourself.
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“I feel fine. Why do I need a will?”
RIDICULOUS — I once had a lady ask me if I would visit her in the hospital to prepare a will. I answered that I would, and she then informed me that she would call me back because she wasn’t sick enough yet! Some people delay their estate planning until it’s too late. She died four months later without a will.
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“I will work on my estate plan as soon as . . .”
YOU NAME IT: I paint my house;
I return from my trip;
I make my funeral arrangements;
I decide what to do with my pets;
I decide who gets what;
I feel better;
I finish my taxes, etc.
I’ve heard every reason in the world to delay implementing an estate plan. There is no time like the present to get your affairs in order. Estate planning is a very important part of preserving your assets for loved ones and providing yourself guardianship planning. Why not enjoy the peace of mind and satisfaction of having it completed and knowing that you have preserved as much of your estate as possible, plus saved yourself from ever having to go through a guardianship proceeding. Why delay?
CONTROLLING THE ESTATE FROM THE GRAVE
Q. How effective are trusts that make bequests conditioned upon the children doing or refraining from doing certain acts?
A. Parents often attempt to control the conduct of their children by leaving them their estate over a period of years if they do certain things. Most courts uphold conditional bequests as long as they do not violate public policy. Let’s look at some common areas.
RELIGION: Some parents will try to force their child to have the same beliefs as they do or to belong to the same church, etc. The courts have varied on this point from state to state, and it is often a matter of the degree of the request. Conditions which tend to interfere with one’s freedom of religion may be struck down as volative of public policy.
MARRIAGE: A gift conditioned upon the recipient remarrying is generally upheld; however, a conditional bequest which would force a beneficiary to remain in an unhappy marriage has been rejected by most courts as a violation of public policy.
DIVORCE: A parent could not require a divorce before his child could receive his inheritance. Most courts would construe that condition as a violation of public policy. A gift which does not induce the divorce but provides for the support of a divorced person is generally acceptable.
PARENTAL CONTROL: Conditions that would require a child to live away from his or her parent before receiving an inheritance are not enforceable as it is clearly against public policy.
BEHAVIOR: The most common conditions are that a child refrain from drug, alcohol, and cigarette use, or maintain a certain grade average in school. This type of behavior can be a condition of a person receiving a bequest from a will or trust. Attorneys have to be extremely careful in drafting these types of clauses, as the most common problem of enforcing them is that they are often too vague.
Conditional bequests can be a way to control behavior from the grave. Each case must be analyzed separately to insure that it is not against public policy, and clauses must be carefully drafted so as not to be too vague.
WILLS – UNDUE INFLUENCE
Q. Can a will be overturned for undue influence?
A. Yes. The free use and exercise of being of sound mind is vitally important and absolutely essential in the validity of a will. A will can be void, in whole or in part, if the execution is caused by fraud, duress, menace, undue influence or mistake. Undue influence is a recognized ground for contesting the probate or setting aside a probated will.
If one is to prove undue influence as required for the invalidation of a will, that person must prove overpersuasion, duress, force, coercion or artful or fraudulent contrivances to such a degree that the one preparing the will lost his freedom of thought in preparing and making the final provisions of his will.
It must be shown that through the practice of persuasion, pressure, artful or fraudulent contrivances, the will was prepared subject to the desires and wishes of an overpowering person and not truly in the best wishes or desires of the person preparing the will.
In addition, in order to defeat a will, undue influence relied on as a ground of contest must have operated on the testator at the time the will was executed.
KINSHIP AND PERSONAL RELATIONSHIPS
Influence that arises from mere affection, attachment, desire to please or gratify is probably not enough to invalidate a will. Even if affection based on an illogical infatuation is proven, it is probably not enough to prove undue influence.
KINDNESS
Kindness, of itself, does not constitute undue influence nor is it evidence of it. Kind offers and good deeds are not improper, and a will cannot be overturned because such influences produced requests in a will.
MARITAL RELATIONSHIPS
There is no such thing as a confidential relationship between husband and wife governing contests of wills. It is possible under special conditions for the wife or husband to exert undue influence in a will if the testator’s emotional, physical or mental condition is impaired.
BENEFICIARY’S HELP IN DRAFTING WILL
Generally, the court views beneficiaries helping to draft wills with disfavor, and such circumstances are considered suspicious and invite close scrutiny.
TESTAMENTARY CAPACITY vs. UNDUE INFLUENCE
If a will is attacked on the grounds of undue influence, then it has been accepted that the party was of sound mind. If it can be proven that a will was executed while one was intoxicated, then the area of competency could be challenged.
UNNATURAL, UNREASONABLE OR UNFAIR CHARACTER OF WILL
The circumstances surrounding a will that is unnatural, unreasonable, unfair or unjust are generally regarded as evidence that the issue of fraud or undue influence is present.
DEGREE OF PROOF
Proof of undue influence is difficult, and, of course, has to overcome the presumption that the will expresses the voluntary intent of the testator.
For questions in this area of the law, please seek the advice of a competent attorney specializing in estate planning.
CHOOSING AN ATTORNEY
Q. How would a new Florida resident choose an attorney?
A. There are many methods available for you to choose a new attorney. Consider the following:
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Ask friends, neighbors or co-workers about lawyers they have used and with whom they have had successful experiences.
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Contact your state, city or county bar association and ask for the names and phone numbers of attorneys who handle cases within your needs.
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Look for advertisements. Many attorneys advertise in the yellow pages and/or newspapers, and these ads often state their specialties, office hours and locations.
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If you live near a law school, you may wish to contact the dean’s office or law professors for a recommendation.
Some questions you may wish to ask the attorney before or during the initial meeting are as follows:
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Is there a charge for the initial consultation? Many attorneys do not charge for the initial meeting.
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What percentage of his or her practice is devoted to cases like yours? Many attorneys can handle a variety of legal matters, while others devote most of their time to one area.
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Does the attorney have references from past similar cases? This information may or may not be available since most attorneys may be very hesitant to release client names for ethical reasons.
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Will he/she personally work on your case or delegate it to others?
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What are the billing arrangements, how will progress reports be made to you regarding your case, and how long does the attorney estimate your case will take to process?
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What are the attorney’s fees? Attorney fees are negotiable and should be a factor in making your decision. Some attorneys charge flat fees, others charge hourly rates, and others take retainers or work on a contingency basis. The hourly rate can vary a great deal from attorney to attorney. Whatever fee arrangement you ultimately decide upon, it is best that it be in writing. The writing can also provide a written estimate of the costs and how bills may be itemized.
Remember, when you choose an attorney, you could be choosing an advisor, confidant, and possibly a friend for life — GOOD LUCK!
LEGAL NEW YEAR RESOLUTIONS
Q. What would be a good list of legal resolutions to make for the New Year?
A. Every person will have their own list of things that need to be accomplished in their own lives. A common list of items and goals for the New Year would be as follows:
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Estate Planning: Everyone should have a will or a trust for proper planning of his or her estate. Wills and trusts should be reviewed every two or three years to keep the estate planned properly for distribution and taxes.
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Insurance: All types of insurance should be reviewed with your agent and/or attorney. A complete review will determine if you have enough insurance and if you have designated the proper beneficiaries. Shifting of the “owner” of some policies has estate planning advantages. Insurance planning for a “disability crisis” or planning to pay estate taxes with insurance dollars are worthwhile concepts to review and modify, if necessary.
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Automobile insurance: More and more people are increasing their insurance and/or adding umbrella policies for extra protection. You have worked all your life to obtain what you have, and it could be catastrophic to lose it because of a lawsuit. Increasing your car insurance is one way to limit your exposure to liability.
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Ownership of assets: A review should be made of “how” you own things and the resultant impact that death or incapacity would bring upon the assets that you own. For example, automobiles should generally be owned in one name, as the owner(s) of automobiles usually are sued when there is an accident. On the other hand, assets held in one name such as CD’s stocks and mutual funds to go through probate upon death. You and your attorney should review how you own your assets and understand the consequences of death or incapacity and how you can change the ownership to minimize estate and administration costs.
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Real estate transactions: All real estate transactions, including contracts for additions to your home, should be reviewed by an attorney before signing. An attorney may help you avoid problems with (1) receiving or giving proper title; (2) termites; (3) mechanic liens; (4) dishonest contractors; and (5) properly licensed individuals.
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List of instructions: A well-planned list of funeral instructions and arrangements as well as what family members are to receive regarding personal effects within a household, makes it much easier on family members at the time of a loved one’s death. Your attorney can draw provisions within your will to allow you to make a separate list of these items.
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Financial inventory: Everyone should have a goal to become financially organized. This would include a complete list of all assets and liabilities in a systematized format. Not only will this help you understand your net worth, but it would also make it easy for loved ones to handle financial matters at a time of need.
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Preparing for the future: It would be a great idea this year to purchase an organizer book that contains important and valuable information regarding your estate. This would also be a wonderful tool for your loved ones to have in the event that it is needed upon your incapacity or death. This organizer should include all personal, family, estate planning, and health care information, all financial information, personal property information, funeral instructions, pet instructions, email and online accounts information, and other important information to you. This organizer should also contain a section to record all of your legal, medical, financial, accounting, banking, stocks and bonds, IRA’s, 401K or pension plans, social security, military benefits, real estate, insurance agencies, religious advisors, and a section for any debts. You can rest assured knowing that you are not just preparing directions for your estate and financial information but also for your other important and sensitive information.
Steve Jobs is dead.
The famous founder and CEO of Apple, one of the most successful companies in U.S. history, died on October 5 of this year after a long time battle with pancreatic cancer. At last count the fruit of Jobs’ labor totaled more than $7 billion including more than $4 billion in shares of Disney stock. With such tremendous wealth, many in the estate planning arena have pondered whether Jobs was as clever with his estate plan as the technology that made him one of the wealthiest people in the world.
The answer is probably yes. Reuters reported that in 2009 Jobs and his wife, Laurene, transferred various real estate to trusts. One reason for transferring real estate to a trust is to avoid probate. Probate is the process of getting assets out of a deceased person’s name. When a person dies with assets only in their name, the assets must go through a probate proceeding to get them out of the deceased person’s name. By transferring real estate, for example, to a living trust, probate is avoided because the asset is in the name of a trust which is still living (e.g. a living trust), even though the person has passed away.
Another lingering question about Steve Jobs’ estate is whether it is subject to the Federal Estate Tax. (For a detailed discussion of the estate tax see the article titled “Luckiest Guy Ever?”) At the current rate of 35% of everything over $5 million, the Federal government could potentially take a big bite out of the apple. Assuming he did nothing for his estate plan (and wasn’t married), his estate tax bill would come out to around $2.5 billion or in Apple-speak, 12.5 million new iphones! However, if Jobs’ creative genius in the area of technology is any indication of his estate plan, he probably put a plan in place that greatly reduced or entirely eliminated a tax liability. One way to do this is through charitable gift planning. Charitable gift planning is a means of reducing the size of one’s taxable estate through charitable giving.
Whether Jobs employed some of these techniques in his estate plan may never be known, especially if he did employ them. One of the many advantages of a trust is that it is a private document. Other than the filing of the deeds that transferred the real estate to the trusts, there are no public records of the trusts. Thus, the details of Jobs’ estate plan, such as who gets what and who was left in charge of his fortune, may never be known.
While the death of Steve Jobs marks the end of a life of innovation, it also serves as a reminder of the importance of proper estate planning. Jobs was only 56 when he died.
In the world of music, Michael Jackson will forever be remembered as the King of Pop. His sensational career began at the young age of 5 as a member of the Jackson Five, and continued for nearly four decades as a solo artist and entertainer until his tragic death in 2009 at the age of 50. Throughout his career, Jackson released numerous top-selling hits including “Thriller” and “Beat It,” and coined one of the most legendary dance moves ever – The Moon Walk. But when it comes to the world of estate planning, Michael Jackson left a different legacy – a move you may want to avoid.
When Jackson died in 2009, his estate plan consisted of a living trust, and a pour over will that left everything to his living trust. A living trust is a way to avoid probate and avoid a guardianship proceeding. Assets in the trust are distributed to your beneficiaries upon your death, but may be used for your benefit during your lifetime, even though you become incapacitated. Assets in the trust also avoid probate. Probate is the process of getting assets out of a deceased person’s name. By re-titling assets to the name of a living trust, a person avoids probate because the assets are in the name of the trust, which is still living (e.g. a living trust), as opposed to being in the name of someone who has died. In Jackson’s case, he failed to properly fund his living trust. As a result his assets had to go through probate.
Michael Jackson’s story is important for two main reasons. First, it demonstrates the importance of properly funding your trust. Funding your trust is the process of titling assets in the name of the trust. This can be accomplished in several ways. In Florida, one can fund a trust by preparing a quitclaim deed of real estate you own from you to your trust. Another way to fund your trust is to re-title bank accounts and brokerage accounts to the name of your trust. These assets still belong to you and you control them, but they are in the name of your trust, which survives you after death and therefore avoids probate. Second, it explains how a pour over will works. The role of a pour over will is that of a “back up” or “catch all” for assets one forgets to put in to the trust while one is living. For example, if you had five bank accounts and re-titled four out of the five in the name of the trust, but forgot to re-title the fifth account, the pour over will would designate your trust as the beneficiary of the account. The advantage of this arrangement is that the terms of your trust still control the distribution of the account. The disadvantage is that the account still has to go through probate. Unfortunately, for the King of Pop, assets were left in his name and had to go through probate before they could be distributed to Jackson’s heirs.
With the New York Yankees taking the lead in this year’s series, it seems fitting to blog about the team’s former owner, and one of Major League Baseball’s most memorable members – George Steinbrenner. The former Tampa, Florida resident and long – time owner of the New York Yankees baseball team died in 2010 at the age of 80, with an estate valued in excess of $1.15 billion. While it is always sad to see someone as legendary as Steinbrenner pass away, his star power helps shed light on an important, and often misunderstood, area in estate planning – Estate Taxes.
When a person dies, the person’s estate may be subject to estate taxes. The estate taxes are separate and different from income taxes. The estate tax is a tax imposed on the gross value of a person’s estate. Whether or not your estate is subject to an estate tax depends on where you die, when you die, and the size (gross value) of your estate. The gross value is calculated by adding up the fair market value of all assets at the time of death, even those assets that are exempt from probate. If the gross value is over a certain amount, then the excess may be subject to the applicable estate tax rate (see the chart below).
Estate taxes can be at the state-level and at the federal-level. Florida does not have an estate tax, so if you are a Florida resident and die, the state of Florida does not impose an estate tax on your estate. However, some states do have an estate tax. This can be an important part of your planning (and another reason to move to the Sunshine State!).
In addition to the state-level estate tax, the federal government imposes an estate tax on estates whose gross value is in excess of $5 million. This means that in order to have a taxable estate you must die with assets valued in excess of $5 million (fair market value). The portion of your estate in excess of the $5 million dollar level is taxed at a rate of 35%. For example, if you die with assets valued at $15 million, the first $5 million would pass to your heirs tax – free (at least estate – tax free). The remaining $10 million would pass to your heirs only after it was taxed at a rate of 35%. In this example, your estate would have to pay at least $3.5 million to Uncle Sam before your heirs could receive their inheritance.
Below is a chart which details and chronicles the history of the Federal Estate Tax. As the chart demonstrates, if you died in 2010, like Steinbrenner, there was no federal estate tax imposed on your estate. When you consider the $350 million tax bill Steinbrenner’s estate could have generated had he died in 2011, or some earlier year, it becomes clear why estate taxes are an important part of estate planning. From an estate planning perspective, Steinbrenner was lucky. He died in a year when the estate tax was zero. But even if he had died in some other year, an experienced estate planning attorney could have helped him develop and implement a plan that could have significantly reduced or even eliminated any estate tax liability.
While Boston fans everywhere will almost certainly disagree, Steinbrenner was arguably one of the luckiest guys to ever live. He had the opportunity to own one of the most beloved franchises in the history of Major League Baseball! Whether some of that luck will be passed on to this year’s World Series is not yet known. What is known is that for 2011 and 2012, the applicable estate tax rate is 35% on the gross value of your estate in excess of $5 million. With proper planning, you can take luck out of the game and still win.
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Year
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Estate Tax Exemption
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Applicable Tax Rate
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2001
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$675,000
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55%
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2002
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$1 million
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50%
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2003
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$1 million
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49%
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2004
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$1.5 million
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48%
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2005
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$1.5 million
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47%
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2006
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$2 million
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46%
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2007
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$2 million
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45%
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2008
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$2 million
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45%
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2009
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$3.5 million
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45%
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2010
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unlimited
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none
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2011
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$5 million
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35%
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2013
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anyone's guess!
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In recognition of Labor Day, we've posted information on labor law. Below is an excerpt from Attorney Joe Pippen's book titled "Ask An Attorney All About Florida Law" that discusses some important distinctions between employees and independent contractors. Enjoy!
EMPLOYEE OR INDEPENDENT CONTRACTOR
Q. What are the advantages and disadvantages of being an independent contractor versus an employee?
A. The best way to answer this question is to analyze the differences between an employee and an independent contractor.
- Employers have the general right to dismiss employees for cause, whereas independent contractors are controlled by contractual agreement whether it be written or implied.
- Payment to employees is generally made periodically or by the hour. Payment to independent contractors is made by the quote or by the job.
- An employee is assumed to have a more permanent relationship than an independent contractor who is assumed to have a limited relationship.
- Employees usually have all tools and equipment paid for and all overhead paid. Employees may not hire other employees to assist them unless previously agreed. Independent contractors supply their own equipment and tools unless otherwise agreed upon and are given opportunity for profit or loss. They have the right to employ others to assist them. Court cases have determined independent contractors supply their own employees while employers control the way work is performed, provide all tools, and pay all overhead expenses.
- Employers may restrict outside employment of employees, but no such restrictions can be placed on independent contractors because their services are offered to the general public.
Substantial liabilities for FICA taxes and withholding can build up unless employers have a reasonable basis for treating an individual as an independent contractor.
Business owners should investigate turning over certain operations to independent contractors who may be able to perform services at an overall lower net cost.
Independent contractors always have the following characteristics:
- No salary;
- No payroll taxes;
- Less supervision;
- Easier termination (by agreement).
Employees are subject to the following:
- Federal income tax withholding;
- FICA taxes withheld and employer contribution to Social Security;
- State and federal unemployment taxes.
Caution should always be taken by one who has a relationship with an independent contractor. For example, real estate brokers who control the hours of independent contractors, or salesmen, and pay their overhead expenses, have been found to have employees who are not independent contractors and are therefore subject to the above taxes. You should consult your attorney to discuss this matter if you have any concerns.
Michael Crichton, creator of such dramas as Jurassic Park and ER, was a master story teller. His ability to transport readers and viewers to another world made him one of the most celebrated authors and screenwriters of all time. It may not be surprising to learn that when Crichton died in 2008, a drama of his own unfolded. Crichton died married to his 5th wife, Sherri Alexander, who was 6 months pregnant at the time. His will had a provision that specifically omitted anyone not mentioned in his will at the time it was executed. The provision stated:
“I have intentionally made no provision in this will for any of my heirs or relatives who are not herein mentioned or designated, and I hereby generally and specifically disinherit every person claiming to be or who may be determined to be my heir-in-law, except as otherwise mentioned in this will.”
As with most of the celebrities featured on our blog, after Crichton’s death a court battle ensued. His widow, who was also named as a successor co-trustee of Crichton’s trust, filed to have their afterborn child (child born after the death of the parent) included as a beneficiary of Crichton’s estate. In legal-speak Crichton’s unborn child would be considered a pretermitted child, which means that the child was born or adopted after the creation of his will. In Florida, a pretermitted child has a right to make a claim for a share of the deceased parents’ estate, unless the child has been omitted intentionally. Here, the issue is whether the above clause in Crichton’s will was an intentional omission of an afterborn child. In addition to the pretermitted child claim, Crichton’s estate faced another challenge. His daughter from a previous marriage filed to have her father’s widow removed as one of the co-trustees.
Crichton’s story is important for several reasons. First, it demonstrates the need to keep your estate planning documents current. When your life changes your estate planning documents may need changing too. It is important to update and review your documents on a regular basis (every 3 years or so). Second, Crichton’s story shows the importance of proper planning in the event of remarriage or new children from a different marriage. Deciding who is in charge of one’s estate, after death or incapacity can be as important a consideration as who gets what. Often, children from previous marriages have different ideas about who should get what and who should be in charge. Finally, Crichton’ story reveals that a will becomes a public record upon death. Anyone - stranger, disgruntled child or creditor - can obtain a copy of your will at the courthouse for a few dollars a page. Unlike a will, a living revocable trust is a private document, meaning it is not filed with the court. With a trust, the terms of your wishes are kept private. In addition, a trust helps allows you to avoid probate (the process of getting assets out of dead person’s name).
While the films and shows that made Crichton famous will continue to captivate audiences as they are replayed in perpetuity, the drama surrounding his estate plan and death is an episode you and your family likely want to miss.